Questions about being a landlord

[Slipper]

DH has a lot of lofty goals and ideas - some great, some not so great. One of his goals has always been to own property and rent it out to others. We currently live on a plot of about 10 acres. We have a chance to buy an additional 16 next to us (which we will probably do). We are related (or know very well) the others around us. My aunt and uncle have asked if we are interested in purchasing their land (which adjoins ours) which would be an additional 45 acres. Most of this land is woods with patches of clear land. We are in a rural area with low cost of living.

 

The idea came about because we bought our aunt/uncle's house and now have a vacant house a couple acres over. One of DH's friends asked if we would be interested in renting it to him in exchange for low rent and he does yardwork for us. (We currently pay over 200 a month for mowing our yard, clearing paths through the trees and trimming shrubbery, etc).

 

We also have an empty building, fully insulated with electricity in it that we had used for storing food. (Our new house has a guest house in back that we now use for food storage and a 'hang out' area for our 10 yo dd who "needs her own space"). DH thought that the building could be turned into an efficiency style apartment with the loft area as a bedroom on one side and storage on the other. The regular area would have a living area/kitchen and a bathrooom. To convert it, we need a septic tank, hot water heater and install a mini kitchen and bathroom. We're debating it at the moment.

 

Of course, that had DH thinking that with the extra land we're looking at buying, whether we could install several 'efficiency' type apartments/buildings on our land. We would look at renting to single adults and college students. (we have two major universities about 45 minutes from here and one smaller college fifteen minutes away). We have enough in our regular savings to convert the storage area and could use our savings (and rent) to work on the next one. We would not touch our retirement (and will not touch it).

 

I love DH, but sometimes he sees the larger picture but not the smaller (would we need more insurance, on-site handyman, permits?, etc).

 

What should we think about as we look at this?

[KatieJ]

Seriously we are having such a rough time right now with our's it's hard to be objective.

 

However, check into zoning laws and be sure you can build and rent out what you want. These other homes will not be your homestead, so check out tax rates and insurance rates. You might be surprised what you need per month just to cover taxes and insurance.

Taxes became a "I have to pay an accountant" to do these taxes.

 

Do you want to do the move in and move out clean up stuff between renters. We have had families and college students both trash houses.

 

Consider an LLC to protect your personal home and assets from liability connected to the rentals. We did that and it posed a new problem. Oour landlord could not evict the tenants. We had to go thru an attorney.

 

That's all for now. But ask away. I have been doing this a very long time.

[Slipper]

Thanks! I read your other thread about your (former) tenant. So sorry!

 

We actually already have an accountant due to some investments that are tricky that we inherited. There is a local lawyer in town who also does family rentals. I was going to ask him to talk to me about what I need to do.

 

I've told DH to price out what he thinks it will cost and I'm going to try to look it over next week.

[TexasRachel]

My dh keeps trying to talk me into the same thing and I keep saying no. We don't have near the amount of land you're talking about though. I think dh sees the $, not the work. And because I'm the one home, I'd be doing the work. :glare: one thing about your post though, as a college student I would've never entertained the notion of living 45 minutes away. That's a long way for commuting. We live about 15 minutes away from the local university (next town over) and so many people think we live sooooo far away.

[KatieJ]

Thanks! I read your other thread about your (former) tenant. So sorry!

 

.

 

Tenant is still lving there. We are awaiting the court hearing so we can have the sheriff evict him. As I said, it's messy, messier than anything we have dealt with in 30 years..and that includes a non legal renter starting a matress onfire and the whole house had to be gutted!

[TranquilMind]

DH has a lot of lofty goals and ideas - some great, some not so great. One of his goals has always been to own property and rent it out to others. We currently live on a plot of about 10 acres. We have a chance to buy an additional 16 next to us (which we will probably do). We are related (or know very well) the others around us. My aunt and uncle have asked if we are interested in purchasing their land (which adjoins ours) which would be an additional 45 acres. Most of this land is woods with patches of clear land. We are in a rural area with low cost of living.

 

The idea came about because we bought our aunt/uncle's house and now have a vacant house a couple acres over. One of DH's friends asked if we would be interested in renting it to him in exchange for low rent and he does yardwork for us. (We currently pay over 200 a month for mowing our yard, clearing paths through the trees and trimming shrubbery, etc).

 

We also have an empty building, fully insulated with electricity in it that we had used for storing food. (Our new house has a guest house in back that we now use for food storage and a 'hang out' area for our 10 yo dd who "needs her own space"). DH thought that the building could be turned into an efficiency style apartment with the loft area as a bedroom on one side and storage on the other. The regular area would have a living area/kitchen and a bathrooom. To convert it, we need a septic tank, hot water heater and install a mini kitchen and bathroom. We're debating it at the moment.

 

Of course, that had DH thinking that with the extra land we're looking at buying, whether we could install several 'efficiency' type apartments/buildings on our land. We would look at renting to single adults and college students. (we have two major universities about 45 minutes from here and one smaller college fifteen minutes away). We have enough in our regular savings to convert the storage area and could use our savings (and rent) to work on the next one. We would not touch our retirement (and will not touch it).

 

I love DH, but sometimes he sees the larger picture but not the smaller (would we need more insurance, on-site handyman, permits?, etc).

 

What should we think about as we look at this?

I've been a landlord for 11 years. NEVER, NEVER, NEVER rent to friends or acquaintances. Only to strangers. Never work any business deals for rent either. Rent is separate from any work done, for which you pay. The work will never be done to your standards and you will have issues with friends, and not remain friends. A thousand landlords will reiterate this.

 

I think your husband has a workable idea, but remember, all of this has to be done to code. You can get permits, but each step will require fees and inspections. Septics are expensive. You will need professionals to do all licensed trade work, though your husband can do some things.

 

So, you will need MONEY. But once you have the buildings, you could have places free and clear. Remember, rental management is more intensive the lower the rental amount and the higher the density. One rental house is easy, compared to dealing with 4 tenants in one building. Your property also has to be zoned for multiple dwellings. You have to screen possible tenants very carefully, including credit, criminal history, employment and previous landlord checks. Just as long as you understand all this going in, you will be fine.

[MrsBear]

Before building anything, you do need to understand how an "improvement" on what is land-taxed now changes with a house on it. It may be a good idea to do it, but you may find that if you add a house to, say the 45-acres, your taxes go through the roof, so you might want to parcel it first, into smaller plats, then build.

 

Exchanging reduced rent for work can work well, but you really want to make sure you have a lease nonetheless, with terms clearly specified. For example, if the guy is going to mow, you need to have in the lease how often that needs to be, what months of the year, etc., otherwise his idea of when it needs to happen versus your idea of when it needs to be done may not be on the same page and lead to disagreement between you.

 

Finishing your building to rent, might be a good idea. How far from your current residence is it? How will doing that affect your privacy?

[black_midori]

I wouldn't make deal with renters for lower rent - really, that is bartering & subject to taxes so you are setting up for potential future audit issues. Ie - A,B & C all pay $900 per mo but D only pays $400 because he does plumbing work for you. Really, you are supposed to indicate that you have rental income from D for $900 (fmv - what everyone else is paying) and contract labor expense of $500 (fmv of his services) - probably a 1099-misc should have been sent to him (because he is required to pay taxes on $500 per mo income as self-employment income), which the IRS is really starting to come down on hard now. Just saying... yes, it happens a lot... no, it isn't "safe" if this is your actual long-term, high-income business.

 

Second - form an LLC and put the land in the name of the LLC. Have the LLC pay for the building. Have the LLC collect the rent & pay out the expenses. If you blend your personal & business items together (using the same bank account, owning the land in your own name, etc) then you can potentially be subject to a huge amount of liability if something happens. It doesn't even have to be something that you could have done much about - they could trip & fall over their own 2 feet in the house they are renting from you & sue you. People suck. Lawyers & lawsuits suck. :) I am a CPA, and the LLC structure is what my boss calls "the cheapest insurance out there" - if you have nothing else, AT LEAST have an LLC!

[Slipper]

Thanks for all the replies. The building we have now is close to our other house. If we rented to a stranger, we would probably want to move it (which is possible although it does affect the water/electricity that is already hooked up).

 

I'll look into parceling the land. Our property taxes are really cheap here. For instance, for both houses and about 10 acres or so, we pay approximately $130 in property tax a year. I'll definitely keep it in mind though and make sure to keep an eye on it.

 

I understand the friend issue and have explained that repeatedly to DH. Whether or not he will listen is another issue. On the bright side, he's a very up-front type of person and won't hesitate to speak his mind about things. In his group, he's the 'alpha' type personality. While I'm only half worried about that aspect, I completely agree with you.

 

I'll keep in mind what is said about the bartering and tax implications. I have no interest in being audited.

 

I wasn't sure about the college aspect since I also considered it far away. DH's thought was that since our area has such a low cost of living, it might be suitable for someone who was taking classes only part-time. For the closer college, it's do-able. The college town struggles to find housing for everyone and others already rent in our town to go there. Of course, everything looks easier on paper. :)